Judge advances suit over botched mortgage modifications

Published: Thursday, Oct. 25, 2012 9:44 a.m. CDT

By Mary Ellen Podmolik — Chicago Tribune

(MCT) — A Yorkville homeowner's lawsuit alleging that her lender botched her efforts to modify her mortgage will be allowed to proceed and seek class-action status, a federal court judge ruled this week.

The Monday ruling by U.S. District Court Judge Sharon Johnson Coleman, denying OneWest Bank's motion to dismiss the case filed by Stacey Fletcher, shows that the door has been opened to homeowners and former homeowners who believe their lenders mishandled applications for participation in the government's loan modification programs, according to Steven Woodrow, one of Fletcher's attorneys.

"It really helps the people who are really being strung along," Woodrow said. "That person may be able to sue the bank for breach of contract."

In 2009, three years after purchasing a home, Fletcher encountered financial difficulties and sought to have her mortgage payments modified by IndyMac Mortgage Services, her lender whose assets have since been acquired by OneWest. According to the suit, a bank representative suggested that Fletcher skip a few mortgage payments in order to qualify for the federal government's Home Affordable Modification Program.

In February 2010 she was approved for a three-month trial payment plan and told, according to the suit, that if she was approved after making those three payments, her modification would be made permanent. Fletcher made the payments, but the bank had trouble crediting her account for the payments and reported her delinquency to credit bureaus. Conflicting letters arrived, including one that came even before the first trial payment was due. That one stated Fletcher was not eligible for a permanent modification because she hadn't made her trial payments.

Two months after the trial period ended, Fletcher hadn't received any decision regarding a permanent loan modification. She filed the lawsuit seeking class action status, alleging, among other things, breach of contract and violations of the Illinois Consumer Fraud and Deceptive Businesses Practices Act.

Fletcher remains in the home, and a foreclosure action has not yet been filed against her because of the pending litigation, Woodrow said. Fletcher declined an interview request.

David Isaacs, a spokesman for OneWest, said the bank doesn't comment on pending litigation.

In her opinion, Coleman cited a federal appellate court ruling in March that favored another Chicago-area homeowner who filed a similar case.

In that case, the 7th Circuit U.S. Court of Appeals overturned a lower court ruling and revived a suit filed by Lori Wigod, a Chicago resident who sued Wells Fargo in 2010. She claimed that the lender broke a promise made in 2009 to give her a permanent loan modification after giving her a four-month trial payment plan.

Lenders have argued that the Home Affordable Modification Program precludes consumers from filing lawsuits alleging federal law violations. But the appellate court ruled that Wigod's state law claims of breach of contract and fraud were not barred by federal laws.

Fletcher's case was put on hold until the appellate court's ruling.

"There's new cases being filed all the time," said Woodrow, who also represents Wigod. "The first wave got knocked off by motions to dismiss. Since the Wigod decision, that's really opened the door for more claims to be filed, rooted in state law, more breach of contract claims."

Woodrow acknowledged that such cases are complex. If it becomes a class-action complaint, the litigation will have to determine the potential class of claimants. It also will have to resolve now much a time delay constitutes breach of contract and how damages would be calculated.